Innovation in Finland needs more corporate support

In Finland perhaps more than in other countries, the role of universities within the venture ecosystem seems fundamental. Finland is home to a well-educated population. With 10 multidisciplinary and six specialised universities, the country was ranked sixth out of 46 by the Organisation for Economic Co-operation and Development for the level of tertiary education attainment among 46 to 55-year-olds (38.5%), and 10th for 25 to 64-year-olds (44.3%) in 2017.
Significant in research funding is the Finnish Innovation Fund, known as Sitra, an evergreen fund whose operations are funded by returns from an endowment currently valued at €771m ($880m) and originally granted by the Finnish parliament. The fund functions both as a think-thank and as an investment company, producing research, events and training centred on three core topics – capacity for renewal, carbon-neutral circular economy, and sustainable economy. Sitra is not directly state-funded and is not answerable to the government.
In a 2008 interview with Finnish technology online forum Hightech Finland, Esko Aho, prime minister between 1991 and 1995 and a former head of Sitra, said: “Finland’s excellent record in education cannot be emphasised enough as a fundamental factor in Finland’s competitiveness and technological excellence.” Ten years on, this statement is still valid.
Many innovation initiatives can be attributed to university students. One of the most important is Slush, which has become a landmark event for the startup and VC community worldwide. Dubbed the “true embodiment of Europe 2020” by the Wall Street Journal, Slush describes itself as a student-driven non-profit movement originally founded to change attitudes toward entrepreneurship. Over the past 10 years, the event has grown from a 300-person gathering to a global community, with 75 events and an estimated 40,000 attendees globally.

Slush has been exported to Shanghai, Tokyo and Singapore, with “each city and each community adding its own local flavour to the global network”, according to its organisers. Anne Jalkala, vice-president for startup and fund investments at energy provider Fortum, said: “Slush is a great example of the type of startup activity that has been developed by students in Finland. It is one of the largest events of its kind worldwide and has benefited us in many ways as a great platform to meet new startups and co-investors. It really shows how students, companies and government can work together to pull off something truly valuable for the ecosystem.”
Another student initiative is the Helsinki Challenge – a science competition in which teams from 10 Finnish universities develop projects in line with the UN’s sustainable development goals. Last year, the competition was hosted by University of Helsinki. Jalkala added: “I have seen a major rise in popularity of entrepreneurial spirit and culture take place over the past 10 years. The mindset towards entrepreneurship has radically changed and it is now seen as a proper career path. A real trend has shaped up, with millennials and digital natives being eager to join or form a startup, having been inspired by some national success stories. Conditions for entrepreneurship are very favourable in Finland, and I have very high hopes for the future.”
Tech transfer
A key change for university venturing came in 2009 when the government introduced the Universities Act, modifying the legal status of universities and enabling them to make financial commitments, own property and do business. Universities also benefit from funding provided by a Business Finland branch, New Business from Research Ideas Funding. The funding aims mainly to help projects prepare for commercialisation. Business Finland can fund up to 70% of the project’s costs.
While most universities in Finland have some form of innovation or venture activity, two stand out – University of Helsinki and Aalto University, respectively ranked first and second by Times Higher Education this year.
University of Helsinki is home to Helsinki Innovation Services (HIS), a tech transfer office that, in the words of its CEO, Jari Strandman, is “very similar to Oxford University Innovation [University of Oxford’s tech transfer office]”. The unit’s primary role is to evaluate research ideas and match them with researchers who can develop them to commercialisation. “We essentially need to prove the case in a commercial setting,” said Strandman. “We prepare it from the laboratories all the way to market stage, so that it is easier to present to investors and entrepreneurs. After the commercialisation process, which is still at university-level, we spin the project out if we think it could be a promising company.”
Strandman said the difficult task was finding the right entrepreneur, usually from outside the university. “Our typical company founders are entrepreneurs who already have some experience under their belt, having perhaps founded a startup or two before,” he said. This is perhaps the main trait that distinguishes HIS from Aalto University’s tech office Aalto Innovation Services (AIS). While HIS works mostly with experienced researchers and entrepreneurs, AIS is more focused on student innovation and development.
HIS, focusing mainly on life sciences, pharmaceuticals and medical devices, typically supports around 20 projects at a time, providing funding of €300,000 to €1m each. A separate entity, the University of Helsinki Funds, occasionally offers additional grants to students and researchers.
At Aalto University, AIS is responsible for the management of inventions, intellectual property and tech transfer. It has previously supported companies such as satellite data interpretation tools maker Iceye, which recently raised €13m in VC funding, and surgical drills and tools specialist Surgify Medical, which raised €1.2m.
Aalto also pushes venture in other ways. The Aalto Ventures Program, for instance, is an in-house service helping teaching staff and faculties integrate entrepreneurial elements into educational programs. Another landmark entity at Aalto is the startup hub Startup Sauna. It began as a one-week bootcamp in 2010, and has developed into an accelerator connecting university-born startups with entrepreneurs, investors and industry experts.
A total of 240 startups – 150 of which are still active – from 27 countries have been incubated by Startup Sauna, having collectively raised €240m of VC funding. Earlier this year, Startup Sauna dropped its accelerator activities, limiting its role to co-working space for startups and hosting student societies, events or hackathons. During the summer, it is home to 10-week incubation program Kiuas Accelerator.
Sini Liu, director of community at Startup Sauna and a former Aalto student herself, is proud that the organisation is entirely student-led and created. “The warehouse in which we operate is owned by the university, which covers all costs, but it is students who have turned it into a startup hub, and who to this day run it from bottom to top,” she said.
Announcing the closure of its accelerator, Startup Sauna said: “After 16 batches, it is time to hang up the towels and let the wood burn out one last time. Back in the day, we launched Startup Sauna to fix a problem. There were not many domestic investors in our region and the region did not appear on the radar screen of international VCs. The ambition and talent has always been evident but funding was broken, which was holding back the rest of the ecosystem.
“Looking back on our journey, our region is now clearly one of the globally recognised startup hotspots. There are more funds available than ever before – both domestic and international. The region is nurturing new unicorns [companies worth at least $1bn] and we are seeing more IPOs and exits. Thanks to all our startups, coaches and partners, we can proudly conclude that the original mission of Startup Sauna has been accomplished.”
Maybe the Startup Sauna folks were right, and universities really are the keystone of Finland’s flourishing VC market. Yet a key piece of the puzzle is still missing. HIS’s Strandman said: “Corporate funding is a source of funding we have not quite tapped into yet – not because we do not want to. Such collaborations would bring great opportunities and partnerships to our spinoffs. The reason is more that, to my knowledge, corporate investment in spinoffs is close to non-existent in Finland. There may be a couple sources, but they most certainly do not get involved in the early stages of development that we deal with.”
Why are corporates so late to the VC party in Finland, and how can this be changed? Jalkala and Jukka Jokinen, senior venture adviser at Helsinki Business Hub, came up with some answers.
“I believe our market has some strong features that have been overlooked,” said Jokinen. “We have a very transparent ecosystem, in which the government and public sector are heavily involved, but where the resources they provide can be leveraged to create quality businesses, and where you have a large pool of talented and educated people available.
“We have some strongholds and key assets to create a fully-fledged ecosystem, but CVC units need to understand how to use these local strengths to their advantage, and how to attract more talent to the country, rather than invest abroad.”
Jalkala added: “There are not many corporates involved in CVC in Finland yet, but I believe there is growing interest as companies start to understand how essential this is for them in order to remain competitive. Many corporations are awakening to the fact that startups develop and commercialise new technologies faster than them, and that they need to engage with them in a more systematic way.
“But all of this requires more definite and enduring commitments from top management. They need to establish clear strategies and to allocate appropriate resources, in addition to adopting a longer-term perspective. Venture requires patience. Traditional industries such as energy, industrials or forestry, also need to wake up to this.”
At a time when international investors are showing more interest in Finland, will local corporates step up to the challenge and gain their domestic market back? Perhaps the Finns’ legendary “sisu”, a famously untranslatable Finnish term referring to an unshakeable determination and resilience in the face of hardship, will help them through.